Development Strategies and Policies:
Economic and Political Impact of Foreign Aid in the Lao People’s Democratic
Republic
March 26, 2005
Waterfront Activity Center
University of Washington, Seattle, Washington
By
Mana K. Southichack, PhD
Development and Agricultural Economist
Hawaii Department of Agriculture
and
Interim Executive Director
LaoEcon Organization
Abstract
periods since 1975: the collectivism (1975-85), the reinstitution of market mechanism under
Chintanakaanmai (1986-1995), and the reform retreat plus the SE Asian financial crisis and post-crisis
phase (1996 to date). Soon after the completion of monopolizing power in late 1975, the communist
government attempted to advance the traditional, agrarian multi-ethnic Lao society along the orthodox
Marxist-Leninist socioeconomic virtue, which resulted in disastrous socioeconomic consequences
characterized by mass exodus of the population, dwindling supplies of daily necessities, and increased
poverty and hardship. To mitigate that, the government allowed the market system that the earlier policy
enforcement had suppressed to reemerge. On the verge of the collapse of its single major benefactor, the
former Soviet Union, the economic reforms were expanded and formalized in 1986 under the theme called
Chintanakaan Mai, meaning new imagination (NIM). Although it was implemented in urgency in order to
avoid fiscal crisis that could escalate to the erosion of the regime’s power, NIM policy implementation
nonetheless produced favorable results. It attracted foreign aids from the free world as it was intended—to
sustain political monopoly, foreign private investment increased, jobs opportunities and economic output
expanded, and most Lao households resided in the monetized zone enjoyed higher incomes, greater
choices of consumer goods and services, and increased mobility. However, by late 1995, the momentum
towards openness brought by the NIM in the early 1990s was disrupted by the communist hardliners.
Coupled with the Asian economic crisis and worsen by poor economic policy, investment and job growth
plunged, and the rise in poverty incidence and hardship especially among the majority urban population
over 1998-99 were visible. Although national output grew on average 6.2 per annum between 1990 and
2004, according to the official data, and absolute poverty declined, various economic and social indicators
confirm that Laos has made little progress since 1975 and is lagging behind. After 30 years of uninterrupted
rule, the government and the national economy has become increasingly more dependent on foreign aid. By
the end of 2004, Laos remained one of the poorest, least developed and least opened countries in the world.
All views and opinions expressed herein reflect those of the author alone and do not by any means
represent those of nor endorsed by the symposium's organizing committee and its sponsors.
